People are more risk-averse in business and career when trying to protect monetary gains than when trying to prevent monetary losses. So that’s the basic idea of a framing effect that an entrepreneur can use for achieving success: it’s a change in people’s decisions when the same objective information is presented in different ways.

When decisions involve hypothetical or small career and business outcomes people are consistent

Some might think that framing effects arise in business because of some idiosyncratic factors that entrepreneurs face when chasing success. Perhaps people are consistent in their choices when decisions involve hypothetical career outcomes or small monetary stakes or perhaps entrepreneurs just aren’t very sophisticated in how to use probability and magnitude information their decisions. But, let me convince you that framing effects aren’t so easily dismissed in successful decision-making.

Let’s return to the idea of retirement planning which we discussed in a previous article on business and career decisions. Retirement decisions involve enormous stakes, both for individuals and for society. Within the United States the Social Security Program provides one of the most important sources of income during retirement, it’s a defined monthly benefit that lasts until the end of life.

The amount of that benefit depends on what an individual paid in taxes during their working years is based on their income and number of years working, but it also depends dramatically on the age of retirement. If the same person retires at the earliest possible date, usually 62 years of age, they are eligible for much less money per year than if they retire at the latest possible date, usually 70 years of age.

How much less? This matters for an entrepreneur. The exact adjustment has been changed over the years but for many individuals facing retirement waiting could increase monthly payments by about 75%. A group of economists studied how different ways of presenting that information could influence people’s retirement decisions so they gave different surveys to a representative cross-section of Americans.

Framing effects are hard to avoid in business and career

Some surveys describe the trade-offs inherent in the Social Security program in much the same way that I just it emphasizing that delaying benefits until age 70 increases your annual payments. This highlights the potential business gains associated with a delay, like a gain framed in the previous example. After reading information presented in this game-frame, on average, people report planning to retire at age 67.

Another survey took an opposite approach to explaining the same information with some degree of success. It calculated how long you need to live until you’d break even, that is when would you earn more money overall by waiting. This emphasizes the potential losses associated with waiting. By delaying you forfeit money that you could’ve collected earlier. And this loss frame pushes people toward early retirements they now plan to retire around age 65 1/2.

Just changing the frame from gain to loss, from protecting your yearly income to forfeiting years of income pushes people’s planned retirement date more than a year earlier. That’s a big deal. The effect of changing from a gain frame to a loss frame was greater than the effects associated with education levels and annual household income, even though those should affect one’s decisions about the date of retirement and framing effect should not.

And there are potentially large stakes here, retiring too early can cost someone tens of thousands of dollars while retiring too late from business or career can cost years of an enjoyable active lifestyle while one is still in good health. Framing effects are hard to avoid even among people who are successful, sophisticated with numbers and have experience with business decision making biases.